June Employment Report Shows Improvement regarding Quantity but not Quality
According to the Bureau of Statistics, total nonfarm payrolls increased by 195,000 in June (above expectations), and the unemployment rate remained unchanged at 7.6% against 7.5%e. The average workweek for all employees on private nonfarm payrolls was unchanged in June (34.5 hours) while average hourly earning rose 0.4% MoM:
Total nonfarm payroll employment increased by 195,000 in June, in line with the average monthly gain of 182,000 over the prior 12 months. In June, job growth occurred in leisure and hospitality, professional and business services, retail trade, health care, and financial activities.
The change in total nonfarm payroll employment for April was revised from +149,000 to +199,000, and the change for May was revised from +175,000 to +195,000. With these revisions, employment gains in April and May combined were 70,000 higher than previously reported.
The number of unemployed persons, at 11.8 million, and the unemployment rate, at 7.6 percent, were unchanged in June.
The average workweek for all employees on private nonfarm payrolls was unchanged in June at 34.5 hours.
In June, average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents to $24.01. Over the year, average hourly earnings have risen by 51 cents, or 2.2 percent.
In June, the number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 4.3 million.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 322,000 to 8.2 million in June.
I – My view:
1/ Nonfarm payroll figures were above expectations such as average hourly earnings (largest MoM rise since July 2011) suggesting that incomes and consumption could accelerate significantly in June.
2/ Nevertheless despite higher revision the last two months, the short term momentum is still below the threshold of 200K which is not a minimum acceptable for Fed:
-> Moving average 3 months: 196K
-> Moving average 4 months: 183K
3/ The fact is that 200K is only sufficient to absorb new entrants but does not allow to push the number of unemployed lower:
-> The number of unemployed people rose slightly: +17K at 11.777K
4/ The other qualitative indicators show very poor performance as:
-> The long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged (-29K) at 4.3 million.
-> Underemployment rate rose from 13.8% to 14.3% because the number of “part time employed for economic reasons” rose 322K.
-> Part-time jobs soared by 360K to 28.059K – an all time record high – while full time jobs were down 240K.
II – Implications on Fed:
Even if inflation expectations rise because of wage pressures, the employment situation only improved slightly regarding quantity and deteriorated concerning quality. Moreover, another important fact is that participation rate rose the last two months suggesting that a part of people which disappeared from statistics because of cyclical factors (not demographic), is coming back and could support unemployment rate in the coming months.
As a consequence, I believe this report does not represent a support for Fed to taper the asset purchases program before December. This view is not shared by Goldman Sachs and JP Morgan:
June hiring strength makes it more likely the Federal Reserve will slow its bond buying program in early autumn, rather than at the close of the year, economists at two top Wall Street banks said Friday.
Saying the June hiring news was “not too shabby,” JPMorgan economist Michael Feroli told clients in a note that he now expects the central bank to trim what is currently an $85 billion per month bond buying program in September. Before the jobs report, Mr. Feroli had expected the Fed to set in motion the bond buying slowdown in December.
Meanwhile, Goldman Sachs also penciled in a September slowdown in Fed bond buying, from December. Noting the June jobs data was better than expected, they liked the payrolls growth, revisions to prior months’ data and the increase in earnings. They downplayed the unchanged unemployment rate amid favorable changes in the number of workers relative to the size of the broader population and overall labor force.